04/03/2009
Occasionally you hear things that you find hard to believe. That happened recently when I heard the 44th President of the United States giving a government guarantee for the warranties of cars purchased from General Motors and Chrysler. It was the perfect metaphor for the unparalleled intrusion of government into the marketplace that accelerated with the 43rd President's bailout of financial institutions deemed "too big to fail." It is now at warp speed with the policies of the current administration. Our federal government is now favoring certain companies over others-both in the financial sector and the automobile industry. These policies are ripe for conflict of interest, cronyism, and more manifestations of the cruel law of unintended consequences.
Guaranteeing the automotive warranties is perhaps a symbol for the new approach to governance in America. The federal government is lining up a bevy of "guarantees" that, if enacted, would significantly change our social compact.
One of the "guarantees" is in health care. President Obama and many of his allies in Congress want to move to a universal health care system in which every American is guaranteed health care coverage. While the plan is not designed to be a "single payer" system with the federal government making all of the payments for (and many of the decisions regarding) health care procedures, it could eventually default into such a system. The cost for the health care plan the president advocates would be enormous. Greatly expanding health care coverage will place escalating demands on the providers within the system. When costs rise (and they will), the government no doubt will employ the same "cost saving" measure it uses for Medicare and Medicaid: reducing the amount of compensation paid to providers. That would likely drive more providers out of the system and could result in rationed care.
President Obama plans to raise the money for his health care initiative from a huge "hidden" tax on carbon emissions. His "cap and trade" approach would have the federal government "guarantee" success in the fight against "manmade" global warming by limiting the amount of carbon dioxide emissions permitted and taxing those that exceed the limits. The president and his congressional supporters, disregard the fact that the amount of atmospheric warming has only risen 0.4 of a degree centigrade in the last 100 years and none in the last 11. They are on a jihad that could cost the U.S. economy as much as $1.9 trillion if this plan is implemented. The effect on jobs and economic growth would be so damaging that even many members of the "tax and spend" crowd in Congress are starting to put the brakes on this idea.
President Obama and many in Congress are pursuing a goal of "guaranteeing" a comfortable life for every citizen of the U.S. In their scenario, the government would see to it that every American will have a good job, a good education, high quality health care and a sound retirement. That is a noble goal that is easier to promote than to accomplish. Historically, those ends are achieved by hard work, a diligent approach to studies and saving for the future. Our leaders in Washington should perhaps eschew the temptation to promise so many guarantees and instead concentrate on making the massive behemoth of the federal government do less and do it much better for the folks who pay dearly to finance it. Promises quickly turn empty fast when the models that deliver them don't work and the cost for providing them brings with it the specter of fiscal insolvency.
Tuesday, April 14, 2009
Wednesday, April 1, 2009
Why We Need Local School Board Reform
03/27/2009
Louisiana has about 700 local school board members across the state. Local school boards are charged with establishing policy that results in quality education for students and they are the stewards of hundreds of millions of tax dollars collected for schools. In January, the national education journal Education Week published its annual "Quality Counts" issue, wherein states are ranked according to the journal's assessment of various educational quality indicators. Louisiana's nationally recognized accountability program ranked high, coming in at number two in the nation. Also as expected, our student achievement ranking was one of the lowest in the U.S., coming in at number 47. Soon, almost one-third (500) of Louisiana's public schools will be considered academically failing.
Quality public education is the key to economic development. There is a huge disconnect between state law and policy and implementation at the local level, where education reform really must occur to be effective. Implementation falls directly into the hands of local school boards. Though some boards operate efficiently and are student-focused, many are bogged down in the micromanagement of their district's day-to-day operations, leaving student achievement behind as a priority issue.
Last year, Rep. Steve Carter approached LABI and other groups to discuss a local school board reform legislative package he was considering introducing during the next legislative session. This coalition began to work with Rep. Carter and the result is four bills that attempt to re-focus school boards on the mission of improving student academic achievement. The bills would:
This legislation will in no way affect board members who do not try to influence hiring and firing. Currently, accountability exists at every level of public education except the school board level. Students are accountable every time they take a LEAP or GEE test. Teachers are being held to ever higher standards, from their university training to their performance in the classroom. Schools receive report cards and districts receive scores.
These bills do not strip elected members from important governance functions, including setting standards and policy, and engaging in procurement. They have taxing authority and spend the local, state and federal tax dollars entrusted to them. These bills are not about blame but, rather, about trying to be the best we can be. It's about being thorough at every level. Nothing in these bills stops "good" school boards from continuing their good work. It's an important step to Louisiana's economic development efforts and providing better educational opportunities for students.
Brigitte Nieland, Vice President and Council Director for LABI's Education and Workforce Development Council, contributed to this column.production and consumption of hydrocarbons
in Louisiana.
Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.
Louisiana has about 700 local school board members across the state. Local school boards are charged with establishing policy that results in quality education for students and they are the stewards of hundreds of millions of tax dollars collected for schools. In January, the national education journal Education Week published its annual "Quality Counts" issue, wherein states are ranked according to the journal's assessment of various educational quality indicators. Louisiana's nationally recognized accountability program ranked high, coming in at number two in the nation. Also as expected, our student achievement ranking was one of the lowest in the U.S., coming in at number 47. Soon, almost one-third (500) of Louisiana's public schools will be considered academically failing.
Quality public education is the key to economic development. There is a huge disconnect between state law and policy and implementation at the local level, where education reform really must occur to be effective. Implementation falls directly into the hands of local school boards. Though some boards operate efficiently and are student-focused, many are bogged down in the micromanagement of their district's day-to-day operations, leaving student achievement behind as a priority issue.
Last year, Rep. Steve Carter approached LABI and other groups to discuss a local school board reform legislative package he was considering introducing during the next legislative session. This coalition began to work with Rep. Carter and the result is four bills that attempt to re-focus school boards on the mission of improving student academic achievement. The bills would:
- Take the profit out of local school board service - local school board members would be prohibited from being able to participate in local district health insurance plans (in 1996 they were prohibited from participating in retirement plans). Further, members may currently receive up to $800 per month in compensation. This bill would limit pay to $200 per month, plus expenses.
- Institute Term Limits - local school board members would be subject to the same term limits as BESE, the State Legislature, and many other boards–three four year terms. The goal of this legislation is to shake up the entrenched status quo that exists in some districts and encourage new citizens to get involved in education reform.
- Define the roles of the board and the superintendent - this bill seeks to get members out of hiring, firing and transferring school employees and creates penalties for those who violate this law. The bill also would require a two-thirds majority of school board members to hire and fire a superintendent.
- Tighten the Nepotism Law - tightens the law regarding the employment of superintendents' immediate family members.
This legislation will in no way affect board members who do not try to influence hiring and firing. Currently, accountability exists at every level of public education except the school board level. Students are accountable every time they take a LEAP or GEE test. Teachers are being held to ever higher standards, from their university training to their performance in the classroom. Schools receive report cards and districts receive scores.
These bills do not strip elected members from important governance functions, including setting standards and policy, and engaging in procurement. They have taxing authority and spend the local, state and federal tax dollars entrusted to them. These bills are not about blame but, rather, about trying to be the best we can be. It's about being thorough at every level. Nothing in these bills stops "good" school boards from continuing their good work. It's an important step to Louisiana's economic development efforts and providing better educational opportunities for students.
Brigitte Nieland, Vice President and Council Director for LABI's Education and Workforce Development Council, contributed to this column.production and consumption of hydrocarbons
in Louisiana.
Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.
Louisiana: The Energy-Less State
President Obama’s recently-released budget details two things: where the Administration wishes to go and how it will pay for it.
In Louisiana and other energy-producing and consuming states, alarms are sounding, because the proposed budget could well be the end of economic vitality as we know it. Louisiana has long been called “The Energy State,” with the oil and gas industry providing state and local governments billions of dollars and creating thousands upon thousands of jobs.
But, in an attempt to chart a totally new energy course for the nation, the FY 2010 federal budget, called “A New Era of Responsibility Renewing America’s Promise,” is simply a plan to destroy the nation’s domestic oil and gas industry. While calling on the country to reduce its dependence on foreign oil to assure national security, the Obama Administration proposes to eliminate the tools that have been given to our domestic industry to seek and find oil and gas here at home.
The new budget proposes at least $31.5 billion in taxes and fees from the oil and gas companies over the next decade to pay for its “transition to a clean economy.” No longer will intangible drilling costs be expensed—that means there will be no more available capital investment for high-risk drilling.
No longer will wells be depreciated. No longer will credit be given for wells that produce only small amounts of oil and gas or for enhanced oil recovery projects. Gone is the manufacturing tax deduction. What the industry will get is a new 13 percent excise tax on production in the Gulf of Mexico.
Proponents of the plan point to industry profits in recent years; however, they totally ignore current realities. Take a look at Louisiana’s current budget and budget proposals for next year to see those realities. When oil topped $100 a barrel, the state of Louisiana amassed hundreds of millions of dollars in surpluses. When the price dropped, what happened? Budgets got slashed.
The oil and gas industry responded similarly—when the price for oil and gas dropped, it stopped investing. What was thought to be a great boon to the economy of north Louisiana and the state as a whole, when Haynesville Shale leasing was at its peak last year, has now slowed to a trickle.
This downturn in oil exploration and production has occurred despite the fact that the industry currently receives the federal incentives and more favorable tax treatment. What will be the effect of eliminating those incentives plus adding even more tax burdens on the industry under the new federal taxing plan? For Louisiana, investment in oil and gas would likely drop by $6 billion a year, the State General Fund would drop by another $2.3 billion a year, and unemployment would probably exceed 10 percent.
At the other end of the “double whammy” are Louisiana’s individuals, businesses, and industries. These are the folks that consume the oil and gas and electricity. The proposed budget hits them too, with what’s called “cap and trade” with an estimated national impact of $150 billion in increased energy costs.
So, where are we going and how will we pay for it? We’re headed toward what the U. S. Department of Energy calls “a low-carbon economy” paid for by taxes on our oil and gas consumers and producers. Though “a low-carbon economy” may be a long-term Administration goal, it will be a short-term reality in Louisiana. The combined effect of the taxes on Louisiana’s producers and consumers will assure that there will be much less production and consumption of hydrocarbons in Louisiana.
Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.
In Louisiana and other energy-producing and consuming states, alarms are sounding, because the proposed budget could well be the end of economic vitality as we know it. Louisiana has long been called “The Energy State,” with the oil and gas industry providing state and local governments billions of dollars and creating thousands upon thousands of jobs.
But, in an attempt to chart a totally new energy course for the nation, the FY 2010 federal budget, called “A New Era of Responsibility Renewing America’s Promise,” is simply a plan to destroy the nation’s domestic oil and gas industry. While calling on the country to reduce its dependence on foreign oil to assure national security, the Obama Administration proposes to eliminate the tools that have been given to our domestic industry to seek and find oil and gas here at home.
The new budget proposes at least $31.5 billion in taxes and fees from the oil and gas companies over the next decade to pay for its “transition to a clean economy.” No longer will intangible drilling costs be expensed—that means there will be no more available capital investment for high-risk drilling.
No longer will wells be depreciated. No longer will credit be given for wells that produce only small amounts of oil and gas or for enhanced oil recovery projects. Gone is the manufacturing tax deduction. What the industry will get is a new 13 percent excise tax on production in the Gulf of Mexico.
Proponents of the plan point to industry profits in recent years; however, they totally ignore current realities. Take a look at Louisiana’s current budget and budget proposals for next year to see those realities. When oil topped $100 a barrel, the state of Louisiana amassed hundreds of millions of dollars in surpluses. When the price dropped, what happened? Budgets got slashed.
The oil and gas industry responded similarly—when the price for oil and gas dropped, it stopped investing. What was thought to be a great boon to the economy of north Louisiana and the state as a whole, when Haynesville Shale leasing was at its peak last year, has now slowed to a trickle.
This downturn in oil exploration and production has occurred despite the fact that the industry currently receives the federal incentives and more favorable tax treatment. What will be the effect of eliminating those incentives plus adding even more tax burdens on the industry under the new federal taxing plan? For Louisiana, investment in oil and gas would likely drop by $6 billion a year, the State General Fund would drop by another $2.3 billion a year, and unemployment would probably exceed 10 percent.
At the other end of the “double whammy” are Louisiana’s individuals, businesses, and industries. These are the folks that consume the oil and gas and electricity. The proposed budget hits them too, with what’s called “cap and trade” with an estimated national impact of $150 billion in increased energy costs.
So, where are we going and how will we pay for it? We’re headed toward what the U. S. Department of Energy calls “a low-carbon economy” paid for by taxes on our oil and gas consumers and producers. Though “a low-carbon economy” may be a long-term Administration goal, it will be a short-term reality in Louisiana. The combined effect of the taxes on Louisiana’s producers and consumers will assure that there will be much less production and consumption of hydrocarbons in Louisiana.
Ginger Sawyer, Vice President and Director of LABI’s Energy Council, contributed to this column.
Saturday, March 21, 2009
A Two-Trillion Dollar Mistake?
03/20/2009
One of the crucial elements of President Obama's legislative agenda is his "cap and trade" initiative that would limit carbon emissions and impose a huge indirect tax on them. In the president's budget outline submitted a few weeks ago, he estimated that some $680 billion in federal revenue would be raised by the proposal over the next eight years. Apparently, his advisors are now admitting that cost estimate is woefully low. In a briefing to U.S. Senate staffers recently, an Obama administration representative put the figure at a whopping $1.9 trillion.
This huge new revenue stream doesn't simply drop from the blue into the treasury. It will come from the pocket of businesses and consumers who use carbon-based energy-and that includes almost everyone.
The Tax Foundation, a Washington, D.C. tax policy think tank, recently completed an analysis of the potential impact of "cap and trade" legislation. Its findings are eye-opening:
"In total, households would face an annual burden of roughly $144.8 billion per year with costs disproportionately borne by low-income households, those under 25 and over 75 years, those in southern states, and single parents with dependent children…. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a 'tax free' way to reduce green house gas emissions."
Revenue from cap and trade legislation figures prominently into the president's future spending plans. It is the principal source of funding for his "middle class" tax cut proposal and increased spending on renewable energy sources. Some skeptics would argue that the Obama administration knew all along that its estimates on cap and trade revenue were grossly understated and they were relying on a much larger revenue amount from it to pay for additional trillions of dollars in new spending proposals.
What Team Obama may not be factoring in is the impact that a not-so-hidden tax will have in a weak economy. If the cap and trade price tag is closer to the $1.9 trillion estimate, consumers are going to riot when those higher costs are passed on to them at a time when wages are stagnant and job security is ebbing.
From a business standpoint, the results could be devastating. Congress can impose carbon emission taxes, fees, and assessments on U.S. companies, but it can't impose them on their foreign competitors. That means American industries and their workers could be at a competitive disadvantage with similar companies located in China, India, Mexico and other less developed nations. Quite simply, that means that the cost of doing business will be higher here, profitability will be lower, and economic growth will be hindered. If cap and trade legislation results in higher unemployment and lower profitability and stock prices for American businesses, no one's economic best interest will be served.
It is interesting that the justification for imposing such an onerous proposal is the claim by some in the scientific community that climate change, particularly in the form of global warming, is threatening the planet. Interestingly, the planetary temperature increase in the last century has been 0.4 degrees Centigrade and the earth has actually cooled since 2001. Congress should think long and hard before inflicting economic misery on families and businesses under the guise of rectifying a problem that may not exist to any threatening degree.
One of the crucial elements of President Obama's legislative agenda is his "cap and trade" initiative that would limit carbon emissions and impose a huge indirect tax on them. In the president's budget outline submitted a few weeks ago, he estimated that some $680 billion in federal revenue would be raised by the proposal over the next eight years. Apparently, his advisors are now admitting that cost estimate is woefully low. In a briefing to U.S. Senate staffers recently, an Obama administration representative put the figure at a whopping $1.9 trillion.
This huge new revenue stream doesn't simply drop from the blue into the treasury. It will come from the pocket of businesses and consumers who use carbon-based energy-and that includes almost everyone.
The Tax Foundation, a Washington, D.C. tax policy think tank, recently completed an analysis of the potential impact of "cap and trade" legislation. Its findings are eye-opening:
"In total, households would face an annual burden of roughly $144.8 billion per year with costs disproportionately borne by low-income households, those under 25 and over 75 years, those in southern states, and single parents with dependent children…. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a 'tax free' way to reduce green house gas emissions."
Revenue from cap and trade legislation figures prominently into the president's future spending plans. It is the principal source of funding for his "middle class" tax cut proposal and increased spending on renewable energy sources. Some skeptics would argue that the Obama administration knew all along that its estimates on cap and trade revenue were grossly understated and they were relying on a much larger revenue amount from it to pay for additional trillions of dollars in new spending proposals.
What Team Obama may not be factoring in is the impact that a not-so-hidden tax will have in a weak economy. If the cap and trade price tag is closer to the $1.9 trillion estimate, consumers are going to riot when those higher costs are passed on to them at a time when wages are stagnant and job security is ebbing.
From a business standpoint, the results could be devastating. Congress can impose carbon emission taxes, fees, and assessments on U.S. companies, but it can't impose them on their foreign competitors. That means American industries and their workers could be at a competitive disadvantage with similar companies located in China, India, Mexico and other less developed nations. Quite simply, that means that the cost of doing business will be higher here, profitability will be lower, and economic growth will be hindered. If cap and trade legislation results in higher unemployment and lower profitability and stock prices for American businesses, no one's economic best interest will be served.
It is interesting that the justification for imposing such an onerous proposal is the claim by some in the scientific community that climate change, particularly in the form of global warming, is threatening the planet. Interestingly, the planetary temperature increase in the last century has been 0.4 degrees Centigrade and the earth has actually cooled since 2001. Congress should think long and hard before inflicting economic misery on families and businesses under the guise of rectifying a problem that may not exist to any threatening degree.
Thursday, March 5, 2009
UC and the Stimulus Package
On February 17th, President Obama signed what is commonly referred to as the "stimulus package." It contains three provisions designed to increase unemployment compensation (UC) payments and provide incentives for states to expand the number of individuals eligible for these benefits. There has been a lot of discussion in the media about these provisions, and it is important to understand how they impact Louisiana.
The first provision allows claimants to continue to receive Emergency UC (EUC) benefits in addition to the six months of benefits already provided under our law. The funding comes from federal general revenues. Some 6,000 Louisiana claimants are receiving EUC benefits, which will expire at the end of this year.
A second provision creates a $25 weekly benefit that every Louisiana claimant will get through June 30, 2010. This additional benefit is also appropriated from federal general revenues. Louisiana is among a handful of states that has a minimum weekly benefit amount of $25 or less. The extra $25 per week will result in some low-wage workers receiving more in UC than they earned prior to becoming unemployed, which could discourage some individuals from actively seeking work.
The final provision, and the one that is generating most of the controversy, would transfer pro-rata shares of $7 billion to states from federal UC taxes paid exclusively by employers. States will receive this money in exchange for enacting or maintaining certain UC laws on their books.
To obtain its portion of this $7 billion, Louisiana must enact a more costly "alternative base period" calculation of benefits, which only 18 states-none in the south-have chosen to voluntarily put in their laws. Louisiana must also adopt at least two of the following provisions:
1.
Individuals shall not be denied benefits because they refuse to accept or actively search for full-time work.
2.
Individuals shall not be disqualified from benefits if they quit work for a "compelling family reason" over which the employer has no control.
3.
Individuals will receive an additional six months of benefits if they enroll in state-approved or federal Workforce Investment Act training.
4.
Individuals will receive dependents allowances of at least $15 per dependent.
It is important to note that, as the stimulus package was moving through Congress, an amendment was proposed to give states this money without the strings attached. However, the amendment was rejected because the leadership in Congress insisted that these permanent benefit expansions had to be part of any additional distribution to the states.
The purpose of our federal/state UC system has always been to provide assistance to workers who lose their jobs because of what happens at the workplace and not at home, and who genuinely desire to rejoin the workforce. Adoption of the expensive expansions in the stimulus package would constitute a significant departure from this.
One should also consider the impact of such changes on Louisiana's unemployment trust fund. The business community has fought for decades to protect the fund's solvency in order to provide benefits for deserving claimants. Enactment of the benefit expansions would jeopardize it's future solvency. If the fund declines, lower benefits for all of Louisiana's unemployed and higher state UC taxes for its employers will kick in. So, while a new group of individuals would get benefits, the unemployed already eligible might see their benefits reduced.
This is not free money. It comes at a price. Some say Louisiana should take it anyway. The fact is that the cost is too dear-for employers and the unemployed alike.
The first provision allows claimants to continue to receive Emergency UC (EUC) benefits in addition to the six months of benefits already provided under our law. The funding comes from federal general revenues. Some 6,000 Louisiana claimants are receiving EUC benefits, which will expire at the end of this year.
A second provision creates a $25 weekly benefit that every Louisiana claimant will get through June 30, 2010. This additional benefit is also appropriated from federal general revenues. Louisiana is among a handful of states that has a minimum weekly benefit amount of $25 or less. The extra $25 per week will result in some low-wage workers receiving more in UC than they earned prior to becoming unemployed, which could discourage some individuals from actively seeking work.
The final provision, and the one that is generating most of the controversy, would transfer pro-rata shares of $7 billion to states from federal UC taxes paid exclusively by employers. States will receive this money in exchange for enacting or maintaining certain UC laws on their books.
To obtain its portion of this $7 billion, Louisiana must enact a more costly "alternative base period" calculation of benefits, which only 18 states-none in the south-have chosen to voluntarily put in their laws. Louisiana must also adopt at least two of the following provisions:
1.
Individuals shall not be denied benefits because they refuse to accept or actively search for full-time work.
2.
Individuals shall not be disqualified from benefits if they quit work for a "compelling family reason" over which the employer has no control.
3.
Individuals will receive an additional six months of benefits if they enroll in state-approved or federal Workforce Investment Act training.
4.
Individuals will receive dependents allowances of at least $15 per dependent.
It is important to note that, as the stimulus package was moving through Congress, an amendment was proposed to give states this money without the strings attached. However, the amendment was rejected because the leadership in Congress insisted that these permanent benefit expansions had to be part of any additional distribution to the states.
The purpose of our federal/state UC system has always been to provide assistance to workers who lose their jobs because of what happens at the workplace and not at home, and who genuinely desire to rejoin the workforce. Adoption of the expensive expansions in the stimulus package would constitute a significant departure from this.
One should also consider the impact of such changes on Louisiana's unemployment trust fund. The business community has fought for decades to protect the fund's solvency in order to provide benefits for deserving claimants. Enactment of the benefit expansions would jeopardize it's future solvency. If the fund declines, lower benefits for all of Louisiana's unemployed and higher state UC taxes for its employers will kick in. So, while a new group of individuals would get benefits, the unemployed already eligible might see their benefits reduced.
This is not free money. It comes at a price. Some say Louisiana should take it anyway. The fact is that the cost is too dear-for employers and the unemployed alike.
Wednesday, February 18, 2009
RANDOM THOUGHTS
02/13/2009
Some random thoughts on a Friday the thirteenth…
THE FINANCIAL CRISIS: a recent analysis by Bloomberg News caught my eye. It estimated that the total federal response to the financial crisis thus far (the stimulus legislation, bailouts, plus the vast infusion of “liquidity” into the financial system) comes to $9.7 trillion. It is almost impossible to envision how big $9.7 trillion is, but here are some illustrations:
It would pay off 90 percent of all the home mortgages in the United States.
It would take spending $13.2 million a day from the birth of Christ until today to equal $9.7 trillion.
It is 13 times more than what has been spent on the Iraq and Afghanistan wars combined.
It could be used to write a check for $1430 to every man, woman, and child alive on the planet today.
It is more than three times the annual federal budget.
Our leaders had better come up with a plan that will work to solve this crisis. There isn’t another $9.7 trillion available for them to take a mulligan on addressing the problems. It is incredible that Congress has rushed to pass a stimulus bill that will cost taxpayers over $1 trillion once the interest on the borrowing is figured in. It is the biggest single piece of appropriations legislation in history, and it is supposed to help reverse a dire economic crisis—yet few will know exactly what they are voting on when the votes are cast. That is a bad way to do business.
THE STATE BUDGET: the Revenue Estimating Conference (REC) is scheduled to meet next week in Baton Rouge. The REC just met in December and usually meets again in May, so it is somewhat unusual for it to be meeting in February. It is highly unlikely that the economists who develop the revenue forecasts for the REC will have any new data that will significantly change the revenue estimate. If that is the case, there is only one reason for the meeting: to certify money coming from the federal stimulus legislation as recurring revenue. If that is done, it would soften the budget cuts that the Jindal administration must submit in its executive budget that must be presented to the Legislature in March. If those revenues are truly recurring in nature, then the REC meeting would be timely. If the revenues are only going to be around for a year or two with no guarantee of them continuing in the future, it will be tantamount to kicking the can down the road for the governor and Legislature to use the money to fund recurring expenses in the budget.
THE LARGEST BUSINESS TAX INCREASE IN LOUISIANA HISTORY: If some legislators and assessors have their way in the upcoming legislative session, businesses in Louisiana could see the biggest hike in their tax burden in modern history. How? By the enactment of a significant increase the homestead exemption which, at $75,000, is at the top of the list in the nation. Currently, $680 million in property tax is shifted from some homeowners to other homeowners and businesses due to the high homestead exemption level. If the exemption is doubled, it would automatically result in a large roll-up of millages to offset the drop in taxable property. Those who pay property taxes would pay much more, and businesses currently pay 80 percent of all property taxes in Louisiana. If the governor and the Legislature don’t want to stifle jobs and make Louisiana even less attractive for economic development, they should nip this huge tax increase in the bud.
Some random thoughts on a Friday the thirteenth…
THE FINANCIAL CRISIS: a recent analysis by Bloomberg News caught my eye. It estimated that the total federal response to the financial crisis thus far (the stimulus legislation, bailouts, plus the vast infusion of “liquidity” into the financial system) comes to $9.7 trillion. It is almost impossible to envision how big $9.7 trillion is, but here are some illustrations:
It would pay off 90 percent of all the home mortgages in the United States.
It would take spending $13.2 million a day from the birth of Christ until today to equal $9.7 trillion.
It is 13 times more than what has been spent on the Iraq and Afghanistan wars combined.
It could be used to write a check for $1430 to every man, woman, and child alive on the planet today.
It is more than three times the annual federal budget.
Our leaders had better come up with a plan that will work to solve this crisis. There isn’t another $9.7 trillion available for them to take a mulligan on addressing the problems. It is incredible that Congress has rushed to pass a stimulus bill that will cost taxpayers over $1 trillion once the interest on the borrowing is figured in. It is the biggest single piece of appropriations legislation in history, and it is supposed to help reverse a dire economic crisis—yet few will know exactly what they are voting on when the votes are cast. That is a bad way to do business.
THE STATE BUDGET: the Revenue Estimating Conference (REC) is scheduled to meet next week in Baton Rouge. The REC just met in December and usually meets again in May, so it is somewhat unusual for it to be meeting in February. It is highly unlikely that the economists who develop the revenue forecasts for the REC will have any new data that will significantly change the revenue estimate. If that is the case, there is only one reason for the meeting: to certify money coming from the federal stimulus legislation as recurring revenue. If that is done, it would soften the budget cuts that the Jindal administration must submit in its executive budget that must be presented to the Legislature in March. If those revenues are truly recurring in nature, then the REC meeting would be timely. If the revenues are only going to be around for a year or two with no guarantee of them continuing in the future, it will be tantamount to kicking the can down the road for the governor and Legislature to use the money to fund recurring expenses in the budget.
THE LARGEST BUSINESS TAX INCREASE IN LOUISIANA HISTORY: If some legislators and assessors have their way in the upcoming legislative session, businesses in Louisiana could see the biggest hike in their tax burden in modern history. How? By the enactment of a significant increase the homestead exemption which, at $75,000, is at the top of the list in the nation. Currently, $680 million in property tax is shifted from some homeowners to other homeowners and businesses due to the high homestead exemption level. If the exemption is doubled, it would automatically result in a large roll-up of millages to offset the drop in taxable property. Those who pay property taxes would pay much more, and businesses currently pay 80 percent of all property taxes in Louisiana. If the governor and the Legislature don’t want to stifle jobs and make Louisiana even less attractive for economic development, they should nip this huge tax increase in the bud.
Tuesday, February 10, 2009
Small Business Tax Increase
February 9, 2009
The 2009 legislative session begins April 27, 2009 in Baton Rouge. So far there has been little or no talk of tax increases at the state level, but don’t let that fool you. During the session legislators will be debating proposals to enact one of the largest property tax increases on small business in the history of the state – by increasing the homestead exemption!
Homestead Exemption Shifts Property Tax Burden to Business
Increasing the homestead exemption would further remove residential property and improvements from the property tax rolls, thereby decreasing total assessed values in each parish. Our state constitution requires that, when assessed values decrease, millage rates automatically increase, so that the local taxing bodies will continue to generate the same revenue as collected in the prior year. Increasing the homestead exemption does not result in lower tax collections or lower tax rates – but, rather the tax burden of residential homeowners is passed on to businesses, renters, and middle-class homeowners by imposing higher millage rates necessary to generate the same tax collections as the prior year.
Louisiana’s $75,000 homestead exemption is already one of the highest in the country. The result – over 50% of Louisiana homeowners pay ZERO property tax! Other fixed-income homeowners, who are 65 years old and older and make less than $64,500, receive the benefit of special level assessments that freeze their property values. On the other hand, 100% of businesses pay property tax, which is why business and industry pays over 80% of all of the property taxes paid in the state.
Small Business Already Hurt by Current Homestead Exemption
Today, the homestead exemption shifts in excess of $650 million of the residential property tax burden to businesses, renters, and middle-class homeowners. Projections show that as all of the remaining residential property in the state approaches $75,000 in value, another $250 million tax increase will be shifted to business, even if there is no change in the current homestead exemption.
The ultimate cost of fully implementing the current $75,000 homestead exemption will be over a $900 million tax increase on the small businesses of our state. This does not take into account any increases in the homestead exemption that will be considered during the regular session – simple math would suggest that doubling the homestead exemption to $150,000 would eventually result in a total tax increase to business in excess of $1.8 billion!
Business Pays at a 50% Higher Tax Rate
Under current law, businesses pay property tax at a 15% tax rate (some businesses even pay 25%), while the homeowner’s tax rate is only 10% -- that’s a 50% higher tax rate paid by business. This disparity is illustrated as follows.
HOMESTEAD BUSINESS
PROPERTY PROPERTY
FAIR MARKET VALUE $100,000 $100,000
ASSESSMENT RATE X 10% X 15%
ASSESSED VALUE $10,000 $15,000
LESS: HOMESTEAD EXEMPTION ($7,500) N/A
TAXABLE VALUE $2,500 $15,000
PROPERTY TAX (100 MILLS) $250 $1,500
The Solution – Limit Millage Roll-Forwards
Rather than increasing the homestead exemption and special level assessments, the resolution of higher property tax bills needs to be properly focused on its root cause – property tax millage rates. When assessors perform their constitutional function of valuing property at fair market value, the higher property values result in an automatic roll-back of millages. Generally, the combination of higher property values and reduced millage rates has the overall effect of leveling off property tax bills, which benefits all taxpayers, not just a few select classes of homeowners.
However, following the automatic roll-back of millages, local taxing bodies are authorized under the state constitution, and without voter approval, to roll-forward millage rates with only a two-thirds vote of the members of the taxing body. It is this subsequent rolling-forward of the millage rates, and not the reassessment of property to current fair market value, that produces sticker shock property tax bills. Many of these taxing bodies that choose to roll-forward their millages are not even elected officials, but rather appointed members of boards that have the power of taxation.
Limiting the ability of taxing bodies to roll-forward millages without voter approval will help lower both property tax millages rates and the property tax bills of all taxpayers.
Action Needed – Now!
The proponents of increasing the homestead exemption are getting their message out, and even circulating a petition for signatures. Your legislators need to hear from you TODAY – don’t wait until the session starts, and don’t assume they will be with us. Tell them, as business owners, we are already paying $650 million of the property tax burden of homeowners and enough is enough! Also tell them the focus needs to be on the millage rates, and limiting the rolling forward of millages will result in lower overall millage rates for all taxpayers.
Click the link below to log in and send your message:
http://www.votervoice.net/link/target/labi28823666.aspx
Wednesday, February 4, 2009
The Politics of Stimulus!
01/30/2009
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
During the last decade, Republican members of Congress have taken a beating in elections around the country. In most instances, those who lost elections-or whose vacant seats were turned over-were replaced by Democrats who proclaimed to be moderate or conservative. Most of those Democrats belong to the "Blue Dog" coalition. The hallmark of this caucus is their self-proclaimed strong belief in conservative fiscal policies. The Blue Dogs could hold the balance of power in the House, especially on budgetary issues-if they were willing to buck their liberal leadership and occasionally join with Republicans.
The Blue Dogs recently had such an opportunity. On January 27, the House voted on the resolution that would allow the leadership's "stimulus" bill to come to the floor. Most of the Blue Dogs felt that the bill contained entirely too much spending and was out of line with what President Obama claimed he wanted in a stimulus package. Had most of the Blue Dogs voted against the resolution, the bill would have gone back to the drawing board along with a clear message to Speaker Pelosi and her leadership that a more conservative approach was needed. The Blue Dogs would have served the nation well by taking such an action and would have put Speaker Pelosi on notice that they were a force to be reckoned with.
Unfortunately, as has happened numerous times in the past, when push came to shove, the Blue Dogs stayed on the porch.
The massive spending bill ($1.2 trillion if you count the interest on the borrowing, which certainly is a legitimate element to count) was passed without a single Republican vote and with only 11 Democrats opposing it. It is the total property of the Democrats. If it does what they claim it will do, they can take the credit. If it doesn't create 4 million jobs, if it doesn't begin to immediately jumpstart the economy, and if it only leads to bigger government and super-inflation, they will shoulder the blame.
That must be an uncomfortable thought for many of the Blue Dogs. Their constituents are certainly concerned about the health of the economy and the security of their jobs. But most of them aren't likely to believe that adding greatly to the size of government (financed through more borrowing) is going to improve the economy to any appreciable degree. That is a dilemma for the Blue Dogs, since the one thing certain about the House passed version of the bill is that it will greatly expand government and pay for the expansion by burdening future generations. The champions of "pay-go" (not allowing any tax cut or increased spending without paying for it with budget reductions or new taxes) went for the biggest increase in deficit spending in history because they couldn't stand up to their liberal leadership.
If the Democratic stimulus bill doesn't work, the Blue Dogs have a problem. If their constituents are taxed later to pay for this extravagance, they have a larger problem. If inflation soars when the economy starts to rebound because the "stimulus" wasn't designed to work immediately, they have a lot of explaining to do.
The most vulnerable Democrats are those who come from districts that were held previously by Republicans. To remain in good standing with their fiscally conservative constituents, they can't simply talk a good game in Washington. They lost an opportunity to shape a more conservative approach on the stimulus, and they may live to regret not having the courage to stand up for what they say they championed.
Tuesday, January 20, 2009
IS THE COST WORTH THE CURE?
It would be funny if it weren't so serious. Henry Waxman (D-
Ca.) proclaimed that his powerful committee in Congress will
rush "climate change" legislation to the House floor before
the Memorial Day recess. This was announced concurrently with
the coldest temperatures to hit the heartland of the country
in over a decade.
The President-elect and the Democratic majorities in Congress
are about to launch legislation that will hit every pocketbook
in America and could cost thousands of jobs as well. Their
goal: To reduce carbon emissions that some claim is creating
rising global temperatures that threaten life as we know it.
But what if they are wrong? There is certainly a body of
scientific evidence that indicates that the earth has never
been in the complete balance of heat energy entering and
leaving the atmosphere in equal proportions as "climate
change" adherents believe is now being altered by man-made
carbon emissions. Reputable scientists have strong evidence to
show that global warming and cooling cycles have persisted in
regular intervals throughout most of geologic time long before
the first carbon emission emanated from cavemen.
Unfortunately, the scientists who have sound theories that
stray from the orthodoxy of the man-made climate change
"religion" are ignored by most of the media as well as the
agencies that fund scientific research. Indeed, some have
their careers threatened by the "case closed" true believers
of the carbon induced climate change theory.
The legislation that will be proposed in Congress will
significantly drive up the cost for both the producers and
consumers of carbon-based energy sources. The higher costs
will lead to significant economic impacts immediately. The
vehicle of choice-"cap and trade" legislation-will require a
huge bureaucracy to administer a complicated system that would
penalize some companies, reward others, and have consumers in
some regions pay substantially higher energy costs than others
due to the type of energy sources available to them. Of
course, the element that puts gleams in the eyes of some in
Congress is that the federal government could reap huge
windfall revenues from such a system.
But where would the money come from? That's easy: From you and
me and millions like us. From businesses and industries
already having a hard time making a profit for the goods and
services they produce. Who will benefit most from the system
(besides the revenue-hungry federal government)? Smatterings
of companies whose lobbyists help influence the laws and rules
to put them at an advantage over others. Who will come out the
worst? The poor, the group that always seems to come out
worst, the individuals who can ill afford to pay more for
basic energy needs.
Yes, Congress seems to be in a mad rush to push through
legislation that can have a huge impact on the job security
and livelihood of American workers. "Change" is the mantra in
Washington, but change is a two-sided coin. Before
dramatically altering the economic landscape of the nation, if
I were a member of Congress, I would want to make darn sure
that:
- The "crisis" I was attempting to fix was real;
- That my "cure" for it was definitely going to work; and
- That the sacrifices that I was asking Americans to make
was unquestionably worth the price they would have to pay.
With all due respect, I don't think our elected representatives in Washington can give us those assurances.
Unfortunately, that probably won't stop them from pushing
through the biggest boondoggle since their "reforms" of Fannie
Mae and Freddie Mac.
Ca.) proclaimed that his powerful committee in Congress will
rush "climate change" legislation to the House floor before
the Memorial Day recess. This was announced concurrently with
the coldest temperatures to hit the heartland of the country
in over a decade.
The President-elect and the Democratic majorities in Congress
are about to launch legislation that will hit every pocketbook
in America and could cost thousands of jobs as well. Their
goal: To reduce carbon emissions that some claim is creating
rising global temperatures that threaten life as we know it.
But what if they are wrong? There is certainly a body of
scientific evidence that indicates that the earth has never
been in the complete balance of heat energy entering and
leaving the atmosphere in equal proportions as "climate
change" adherents believe is now being altered by man-made
carbon emissions. Reputable scientists have strong evidence to
show that global warming and cooling cycles have persisted in
regular intervals throughout most of geologic time long before
the first carbon emission emanated from cavemen.
Unfortunately, the scientists who have sound theories that
stray from the orthodoxy of the man-made climate change
"religion" are ignored by most of the media as well as the
agencies that fund scientific research. Indeed, some have
their careers threatened by the "case closed" true believers
of the carbon induced climate change theory.
The legislation that will be proposed in Congress will
significantly drive up the cost for both the producers and
consumers of carbon-based energy sources. The higher costs
will lead to significant economic impacts immediately. The
vehicle of choice-"cap and trade" legislation-will require a
huge bureaucracy to administer a complicated system that would
penalize some companies, reward others, and have consumers in
some regions pay substantially higher energy costs than others
due to the type of energy sources available to them. Of
course, the element that puts gleams in the eyes of some in
Congress is that the federal government could reap huge
windfall revenues from such a system.
But where would the money come from? That's easy: From you and
me and millions like us. From businesses and industries
already having a hard time making a profit for the goods and
services they produce. Who will benefit most from the system
(besides the revenue-hungry federal government)? Smatterings
of companies whose lobbyists help influence the laws and rules
to put them at an advantage over others. Who will come out the
worst? The poor, the group that always seems to come out
worst, the individuals who can ill afford to pay more for
basic energy needs.
Yes, Congress seems to be in a mad rush to push through
legislation that can have a huge impact on the job security
and livelihood of American workers. "Change" is the mantra in
Washington, but change is a two-sided coin. Before
dramatically altering the economic landscape of the nation, if
I were a member of Congress, I would want to make darn sure
that:
- The "crisis" I was attempting to fix was real;
- That my "cure" for it was definitely going to work; and
- That the sacrifices that I was asking Americans to make
was unquestionably worth the price they would have to pay.
With all due respect, I don't think our elected representatives in Washington can give us those assurances.
Unfortunately, that probably won't stop them from pushing
through the biggest boondoggle since their "reforms" of Fannie
Mae and Freddie Mac.
Friday, January 9, 2009
ANATOMY OF A DEFICIT
The Revenue Estimating Conference (REC) met on December 15 to do its constitutionally required task of giving the official estimate for state revenues for both the current budget and the one for the fiscal year beginning next July 1. According to the economist for the Legislative Fiscal Office, the news was “bad and badder.” The REC adopted estimates that result in a revenue shortfall of $341 million in the current budget and $1.1 billion for the 2009/2010 fiscal year.
The Joint Legislative Committee on the Budget officially adopted the revenue forecasts and authorized that a letter be sent to the governor notifying him of a deficit for the current budget. That notification triggers a constitutional requirement that the budget be balanced within 30 days. State law allows the governor to cut up to 3 percent of each budgetary unit and the Joint Budget Committee to cut up to 2 percent more, without the Legislature being in session.
The media reports of the REC meeting mentioned a $2 billion estimated deficit for the 2009/2010 fiscal year. That led to some confusion since the revenue shortfall for that budget year is only estimated to be $1.1 billion. One might reasonably ask how a $1.1 billion drop in revenue triggers a $2 billion deficit. Here is some information to shed some light on that difference:
Part of the difference comes from the use of “continuation” budgeting. What “continuation” in a budget means to ordinary folks doesn’t necessarily carry the same meaning in government. In government, “continuation” doesn’t mean “carry on with what you have.” It means carry on with an automatic increase in spending. Not many households or businesses are going to fashion budgets with automatic increases next year. State government won’t have that luxury either.
Another practice that is a potential cause for the deficit exceeding the revenue loss has to do with the use of “special funds” in budgeting. When revenues were surging, the Legislature—in conjunction with sitting governors—often stuffed money into funds they created in order to prevent the money from rolling over into surpluses. (Our state constitution restricts the use of surpluses to one-time expenditures in limited areas. State officials don’t like to have their hands tied when it comes to spending.) This was especially true when state spending was bumping up against the expenditure cap. Recent budgets utilized a considerable number of these “special funds.” To the extent they were used for truly one-time expenditures, they shouldn’t have an impact on the 2009/2010 budget. If they were used to fund appropriations that were recurring in nature (or if there is no money left in the funds), it adds to the projected deficit.
To balance the current budget, state officials must cut more than the $341 million projected revenue shortfall. Half the budget year is over, so to balance the books, $600-$700 million must be reduced on an annualized basis. If Governor Jindal and the Legislature bite that bullet now (as required by the Constitution), they greatly reduce the potential $2 billion deficit for the 2009/2010 budget. If the actual 2008/2009 budget—adjusted for the cuts that must now be made—is used as a baseline instead of a “continuation” budget, the problem becomes manageable.
If those steps are taken and more still needs to be done, state officials should go back and look at what items were added to the 2008/2009 budget. The state general fund increased by approximately $1 billion in the current budget. Certainly some of those spending increases could be adjusted downward without ending critical services in Louisiana.
The Joint Legislative Committee on the Budget officially adopted the revenue forecasts and authorized that a letter be sent to the governor notifying him of a deficit for the current budget. That notification triggers a constitutional requirement that the budget be balanced within 30 days. State law allows the governor to cut up to 3 percent of each budgetary unit and the Joint Budget Committee to cut up to 2 percent more, without the Legislature being in session.
The media reports of the REC meeting mentioned a $2 billion estimated deficit for the 2009/2010 fiscal year. That led to some confusion since the revenue shortfall for that budget year is only estimated to be $1.1 billion. One might reasonably ask how a $1.1 billion drop in revenue triggers a $2 billion deficit. Here is some information to shed some light on that difference:
Part of the difference comes from the use of “continuation” budgeting. What “continuation” in a budget means to ordinary folks doesn’t necessarily carry the same meaning in government. In government, “continuation” doesn’t mean “carry on with what you have.” It means carry on with an automatic increase in spending. Not many households or businesses are going to fashion budgets with automatic increases next year. State government won’t have that luxury either.
Another practice that is a potential cause for the deficit exceeding the revenue loss has to do with the use of “special funds” in budgeting. When revenues were surging, the Legislature—in conjunction with sitting governors—often stuffed money into funds they created in order to prevent the money from rolling over into surpluses. (Our state constitution restricts the use of surpluses to one-time expenditures in limited areas. State officials don’t like to have their hands tied when it comes to spending.) This was especially true when state spending was bumping up against the expenditure cap. Recent budgets utilized a considerable number of these “special funds.” To the extent they were used for truly one-time expenditures, they shouldn’t have an impact on the 2009/2010 budget. If they were used to fund appropriations that were recurring in nature (or if there is no money left in the funds), it adds to the projected deficit.
To balance the current budget, state officials must cut more than the $341 million projected revenue shortfall. Half the budget year is over, so to balance the books, $600-$700 million must be reduced on an annualized basis. If Governor Jindal and the Legislature bite that bullet now (as required by the Constitution), they greatly reduce the potential $2 billion deficit for the 2009/2010 budget. If the actual 2008/2009 budget—adjusted for the cuts that must now be made—is used as a baseline instead of a “continuation” budget, the problem becomes manageable.
If those steps are taken and more still needs to be done, state officials should go back and look at what items were added to the 2008/2009 budget. The state general fund increased by approximately $1 billion in the current budget. Certainly some of those spending increases could be adjusted downward without ending critical services in Louisiana.
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